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Gold and Silver Defying Gravity

Commodities / Gold and Silver 2010 Oct 07, 2010 - 08:51 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD hit yet another new Dollar high early Thursday, touching $1364 an ounce as the US currency slumped to fresh 15-year lows against the Japanese Yen and world stock markets also fell.

The Euro and British Pound both neared 8-month highs vs. the Dollar after their central banks failed to cut rates or expand their "asset purchase" quantitative easing at today's monthly meetings.


Crude oil ticked higher to $83.65 per barrel, and silver bullion broke yet more three-decade highs at $23.50 per ounce.

"Getting to a much higher price for gold is not quite the leap of imagination that it seems, adjusting for inflation," says Harvard economist Kenneth Rogoff.

"Gravity defying!" gasps a Hong Kong dealer in a note. "All 4 [precious] metals were heading north and sellers disappeared" in Asian trade.

"The gold chart looks to be entering the foothills of the parabola," reckons the Financial Times' Global Market View blog.

But rising 8.2% against the Dollar from this time a month ago, the gold price rose faster still – month-on-month – in the spring and autumn of 1968, late 1970, summer 1971, the first-halves of both 1972 and 1973, winter '73-74, the autumns of 1974, '75 and '76, spring and autumn 1977, and then pretty much non-stop through 1978 and '79.

Gold's current bull market saw stronger price-appreciation in Feb. 2000, May 2001, Dec. 2002, the springs of 2003, '04 and '05, Dec. '05 straight through to July '06, the last quarter of 2007, early and late 2008, early in 2009, and again in Dec. last year.

"Through the end of July," says the Wall Street Journal, "[US] investors poured $22 billion into emerging markets mutual funds and a remarkable $155bn into bond funds.

"Compared to these figures, the amount invested into gold [in the United States] is chickenfeed" – estimated by journalist Brett Arends to net-out at $2.7bn for the first six months of the year.

Online searches for "Gold Price" have meantime risen sharply in the last month, according to Google Trends data, but they remain well below the global English-speaking peaks of May 2010 and Nov. 2009.

Web searches for "Buy Gold" are running at barely one-third the peak of late 2008, says Google – just after Lehman Brothers collapsed, and when gold's month-on-month appreciation hit 15.9%, almost twice its current rate of gain.

Across all those days since 1968 when gold's month-on-month appreciation matched or exceeded its current pace, the average 22-day gain in Dollars was 14.7% according to BullionVault analysis today.

"[Gold] is still very overbought and needs a correction or consolidation to get back from the overbought condition," says Phil Smith at Reuters Technical in Beijing once again today.

"I love gold [but] this market is long overdue for a near-term pullback," says wealth-manager Gluskin Sheff's chief economist David Rosenberg.

On the monetary policy front today, neither the Bank of England or European Central Bank made any change to their record-low interest rates or outstanding "asset purchase" schemes.

Confronted with the weakest Dollar/Yen exchange rate since Easter 1995 at ¥82.24 today, Tokyo's deputy finance minister Mitsuru Sakurai said this morning that the Bank of Japan alone cannot reverse the Japanese currency's rise – implying that fiscal stimulus is set to follow the central bank's return to quantitative easing and forex intervention.

Priced in Yen, gold bullion spiked on Thursday to its strongest level since late June above ¥3,600 per gram.

The gold price in Euros also rose, adding 1.5% from last week's finish but holding little changed from one, two or three months ago.

Spot gold priced in Sterling meanwhile came within £15 of its record high at £870 per ounce, recording an AM London Fix of £853.10.

By Adrian Ash

BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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